By Arathy Somasekhar
HOUSTON (Reuters) - Oil prices closed slightly lower on Tuesday, adding to a more than 6% drop in the previous session, on a report that Israeli Prime Minister Benjamin Netanyahu will hold a meeting for a diplomatic solution to the war in Lebanon.
Brent crude futures settled down 30 cents, or 0.4%, at $71.12 a barrel, while U.S. West Texas Intermediate crude shed 17 cents, or 0.3%, to $67.21 a barrel.
The two benchmarks had gained more than $1 a barrel earlier in the session. Both contracts fell on Monday to their lowest levels since Oct. 1 after Israel's retaliatory strike on Iran at the weekend bypassed Tehran's oil infrastructure.
Netanyahu will hold a meeting on Tuesday evening with Israeli ministers and the heads of the country's military and intelligence community about talks for a diplomatic solution to the war in Lebanon, Axios reporter Barak Ravid said on X, citing two sources.
Iranian Foreign Ministry spokesperson Esmaeil Baghaei said on Monday that Iran will "use all available tools" to respond to Israel's weekend attack.
Meanwhile, declining oil demand from China, the world's largest crude oil importer, remains a drag on global oil consumption and prices.
Demand will return to normal growth rates after Chinese President Xi Jinping introduces new stimulus measures to the economy, BP (LON:BP) CEO Murray Auchincloss told Reuters.
The oil market is currently balanced and demand is expected to average 104.5 million barrels per day this year, the CEO of Saudi Arabian oil giant Saudi Aramco (TADAWUL:2222) said.
"Markets tried to stage a modest recovery but continue to be under pressure from lacklustre demand from China and worries about increasing supply," said Andrew Lipow, president of Lipow Oil Associates.
U.S. crude oil stocks fell by 573,000 barrels in the week ended Oct. 25, market sources said, citing American Petroleum Institute figures on Tuesday.
Gasoline inventories fell by 282,000 barrels and distillate stocks fell by 1.46 million barrels, they said.
U.S. government data is expected on Wednesday morning. [EIA/S]
Crude oil and gasoline stockpiles in the U.S. were expected to have risen last week, while distillate inventories were expected to have fallen, a preliminary Reuters poll showed on Monday.
Meanwhile, the U.S. Federal Reserve will cut interest rates by 25 basis points on Nov. 7, according to all 111 economists in a Reuters poll, with more than a 90% majority predicting another quarter-percentage-point move in December.
Lower interest rates cut the cost of borrowing, which can spur economic activity and boost demand for oil.